Damaging Capitol Hill Hearings on AIG

Posted by: Nanette Byrnes on October 7, 2008

1007_aig_hearing.jpg
The House of Representative’s Committee on Oversight and Government Reform is in the midst of its hearing on the decline of American International Group. The picture emerging is one of a far-too independent Financial Products group (AIGFP), home to the credit default swap business that eventually drew the insurer to the brink of bankruptcy, a board of directors that had been warned by the company’s auditor about problems valuing those contracts, and management that had very little clarity about just how much AIG was on the hook for.

There’s plenty here to fuel taxpayer anger over government aid to Corporate America. Exhibit A: a $443,343.71 bill for a subsidiary’s executive retreat taken just days after the New York Fed came to the company’s rescue with an emergency $85 billion line of credit. Hosted at the St. Regis Resort Monarch Beach in Dana Point, California, the event racked up nearly $7,000 in golf fees and $23,280.00 was spent at the Spa Gaucin, where massages start at $175 and facials can cost as much as $350. Following the hearings, AIG CEO Edward Liddy clarified that the event was for top independent agents, and of 100 attendees, only 10 were employees, none from headquarters.

Also damning, the termination agreement with the former head of AIGFP, Joseph T. Cassano, outlining a 9-month consulting contract under which he continued to be paid $1 million a month.

Of deeper concern are a series of questions answered for the Committee by a man named Joseph W. St. Denis, vice president of accounting policy at AIG Financial Products from June 2006 until his unhappy departure in October 2007. St. Denis had been hired to address material weaknesses at AIGFP but clashed with Cassano, and his answers describe a leadership at AIGFP that made it impossible for him to that job.

More detail is coming out, too, about the two challenges that lead to AIG’s severe crisis last month. The first was the fact that AIG had agreed to post collateral on its credit default swaps if its ratings fell. In June 2007, SEC filings indicated counterparties to AIG in credit default swaps had asked for collateral of $847 million. By February 2008 that was up to $5.3 billion. Four months later it was $16.5 billion. And last Friday, new CEO Edward Liddy said the company had borrowed $61 billion of the $85 billion available from the government, and that as much as $54 billion of that had gone to AIGFP.

Those downgrades were linked to AIG’s other problem: its need to value those contracts, many of which were exposed to declines in the subprime mortgage market. As of June, AIG had determined its market loss on these AIGFP contracts to be $26 billion.

Former CEOs Martin Sullivan and Robert Willumstad are putting a lot of blame on mark-to-market accounting, which caused the company to have to log the lost value of their derivative contracts. But former SEC chief accountant Lynn Turner argued firmly against modifying those rules in his own testimony.

Long-time AIG CEO Maurice Greenberg summed it up simply in his written testimony: “Additional risk AIG had taken on through these new credit default swaps…appears to have been substantially unhedged,” he wrote. A mistake, clearly, no matter what the accounting rules say.

Greenberg had been slated to testify in person, but bowed out due to illness.

Reader Comments

NatureFriend

October 7, 2008 2:17 PM

Ben Bernanke and Henry Paulson might also be there in that party.. they might not be seen due to facial application..

All these guys are thieves.. they help each other and steal our tax money.. they are the modern 21st century pirates

Geo Washington

October 7, 2008 3:09 PM

It seems obvious from the House hearings that the AIG CEO and Board of Directors are simply white collar criminals. There was no leadership, no accountability, and no one looking after the interest of the consumer or the stock holders. We are living in a moral vacuum where greed and corruption is the only motivation for senior officials. Most CEOs on Wall Street are worthless scum--very similar to their Hollywood counterparts on the other coast.

hartley Lord

October 7, 2008 3:46 PM

Paulson is just an establishment "pimp" put in a position of power to cover up and incompetence and criminal activities which are mammoth and deliberate that were performed with malice.

Encamps

October 7, 2008 4:16 PM

It's funny ....when embezzlement occurs in another country (let's just say a third world country), the leaders are called dictators and despots. Yet the same practises are rewarded with government bail-outs, golden handshakes and a nod in so called sivilized countries.

carson grey

October 7, 2008 4:33 PM

!%$&#%%

Is anyone else as furious about this as I am?? These people are disgusting liars and thieves they should be put into JAIL.

Imagine what the articles are going to look like coming out of what the 700 Billion was spent on!!!!

Paul

October 7, 2008 4:52 PM

These guys don't deserve what they're getting when they have destroyed companies, then still do very well, while other people are getting laid off, have lost value in stocks or their pension fund and now have to dip into their savings, get pay cuts, or everyone else picks up the remains of these companies at taxpayer expense. Someone needs to put a stop to this type of greedy criminal behavior, yet no one will do so as it seems no one has the courage. Feels like we're on an aimless sinking ship nationally and it's definitely not country first, rather some at the top, themselves first. What a great deal for them, now taxpayers are paying for their mistakes and lavish lifestyles. This sickens me.

Kent

October 7, 2008 5:11 PM

Haven't heard much from Bush about these crooks have we..... as a matter of fact we haven't heard much from much of the administration sence the payout... I mean bailout to wall street was signed by him..... Thick as thieves I'd say.....


Damn... I sure do hope that this is one of those 'free speech zones'

wenzel

October 7, 2008 5:33 PM

will someone try to explain to me why these executives and their directors are not doing jail time and being forced to return the monies they have stolen-if we did what they did , we would be doing serious time in a maximum security prison!!!

Nhoj

October 7, 2008 5:50 PM

Here's the best part: Congress (both parties mind you) is going to hold "hearings", posture for the cameras, hold a few small-fry chumps responsible for everything, dole out taxpayer cash to the same Wall Street fat cats who regularly contribute to their campaign coffers, then, as soon as everyone is distracted by other news events, go back to business as usual. Let's face it: There's just too much money to be made to actually regulate these guys!

Annette O. Bigler

October 7, 2008 6:21 PM

Why if I ask for federal assistance it is called socialism and Wall Street request is called capitalization?

David

October 7, 2008 6:36 PM

Enough complaining and moaning. Every election we send the same people right back to Washington. Incumbents win 92% of the time and we sit here and repeat Ground Hog day. We have the ability to throw out every single congressman this November. If they don't care about who gets caught in their net of greed and corruption, why should we care if the few good ones in the House get swept out with the criminals and gluttons. Since it doesn't matter which party is in the majority, vote them all out and start over. In six years we can have a new Senate while we are at it. All this talk really doesn't matter unless we make the choice at the ballot box to absolutely, 100% clean house, unless you are happy with your party's performance of course. We threw tea in the harbor for less than this. The constitution gives us instructions on how to deal with this issue. I am voting against my party, something I haven't done since 1972.

Jim L

October 7, 2008 6:53 PM

Where is the accountability? Will these whores and prostitutes be brought into court for committing white crimes. I don't care whether you are rich or poor, a thief is a common criminal, be you a Wall Street fat cat or a crook holding up a liquor store. What has happened to this country when greed takes a higher priority then ethics. Is this what the Harvard's and Yale's are teaching in their high and mighty business schools? Maybe an MBA gives these jerks a presupposed entitlement to take whatever they think they are smart enough to rip off from the public.
I don't know. Just seems that way to this country boy from the midwest.

Suzanne in Colorado

October 7, 2008 6:59 PM

I got reamed by some guy in a posting earlier this autumn wherein I criticized AIG and Swiss Re as the big proponents of alternative risk transfer products a la Enron (which now seems like a cupcake sale compared to the debacles we seeing on a daily basis). This person lectured me that Swiss Re was a REinsurance company and not involved in this sort of madness. Wrong!! Waiting for that shoe to drop because they, along with AIG, were heavy into these sham products, particularly the derivatives. Just google Walter Kielholtz, Prakash Shimpi, Swiss Re New Markets and you'll see the articles touting the soundness of "balance sheet management."

Andy

October 7, 2008 7:05 PM

This is an outrage.. we should send them to China, where they get the death penalty for these types of financial crimes..

Strategery

October 7, 2008 7:18 PM

David, while I agree that we need to change how we vote, the election process is full of corruption too. Who won in 2000? Al Gore. Who got to be president? Who should have won Ohio in 2004? What about the butterfly ballots, the rigged electronic voting machines, the supreme court ties, and the disenfranchised voters? Why did the US refuse to allow the UN to review the 2004 election? Why is Obama on the democratic ticket when Hillary had the most votes?

edan

October 7, 2008 7:42 PM

These excutives should be thrown in jail. A real jail not a country club one. This is an insult to the american people. They are so arrogant and it looks like they will get away with it. Americans have to unify and demand from their state representatives justice. We have to stop this vicious cycle of business as usual in corporate america.I am sure the employees were told their was no money for office supplies meanwhile these executives continued to have their perks.

PacificGatePost

October 7, 2008 7:49 PM

THE MOST IMPORTANT LETTER A CEO CAN RECEIVE:

A NEEDED FIX IN ALL BOARD ROOMS

Isn't it time the system went in for some much needed repair?

Due diligence and oversight long ago slid out the window. No one was watching.

Time to do something about it.

Here's a huge one they all missed.... The dramatic change that swept through all of North America's boardrooms over the past 30 years. It is one of the underlying causes of the headache the economy is now feeling, but more importantly, it has resulted in the general feeling of "disconnect" by most Americans.

"WE THE SHAREHOLDERS OF YOUR COMPANIES......

http://pacificgatepost.blogspot.com/2008/03/letter-to-ceos-of-fortune-1000-cos.html

Mike

October 7, 2008 8:40 PM

These corrupt and reckless people apparently think we were all born last night. The gall to take our money and then spit on us. Shame on our government who is supposed to represent the taxpayers. This corruption has now reached its disgusting all time high (or perhaps low), and we the American middle class and small business owner have let it go on too long. I agree with starting all over in the government again, but the rules are going to have to change or we will be back in this same condition again in the next generation(s). That's assuming of course we make it through this era of greed driven upper echelon crooks.
If you and I (the taxpayers) do a crime, we do the time. But not the real winners in this situation. Oh, no pun intended. They are all losers in my opinion.

Phillip

October 7, 2008 10:50 PM

Most of the comments seem to channel anger at the boards and CEO. I'm just wondering if everyone on this blog were put in those lofty positions would they fight to stay what is right. The point is if the dog is allowed to piss on the couch, it will. Where are the government's oversights on all of these? The bail out is an excuse of the government lack of accountability. Who appoints most of the agency's heads that suppose to regulate/oversee these entities?

Midwest

October 7, 2008 10:58 PM

These guys are untouchable. They are arm in arm with other power players that will protect them no matter how much they've stolen (which is turning out to be BILLIONS). The French Revolution had it right. We should take a page from the history books and repeat it. That's the only way these thieves will suffer anything for their crimes.

Lea Smith

October 7, 2008 11:22 PM

We the people should organize a national walk out. Take the country under siege buy staying home from work, using as little of their resources as possible i.e. little to no electricity, no driving, no shopping and try to live off of the remaining supplies we have stock piled in our pantry's. Read by candle light until our point "we can't take it any longer" is made.

dennis

October 7, 2008 11:37 PM

we all should realize no matter who we put in office they will spin,spin,.spin steal.steal,steal, and blame the other party, I agree with David we have to vote them all out

Mike Kim

October 8, 2008 12:57 AM

These executives are just like third world King and Dictators. Despites their people dire need of help, they live lavishly without sympathy its people but showing off their power’s like Teflon Don that could resist any prosecution, and think we all stupid.

omer khan

October 8, 2008 1:49 AM

i presume the directors werer trained by Asif Ali Zardari

frank

October 8, 2008 2:50 AM

i know there crooks my moms boyfriend went to dinner 10 years ago with two execs from aig - dinner bill for 12 almost $9,000 the two had to split bill expense report only allowed for $4,500 each for dinner

llflawedll

October 8, 2008 2:53 AM

I'm not trying to raise any serious red flags, however I did notice that they guy who killed his whole family in California worked with pricewaterhousecoopers. "He then took a job with the accounting firm PricewaterhouseCoopers". According to most of the articles I'm reading, PricewaterhouseCoopers did auditing and reviewing for AIG back a couple years ago. To be perfectly honest, a man who lost all the money and stature in the world should never kill himself if his family is tightly knit over something like money. Articles indicated they were very very close. However if he was guilty of doing something "wrong" that could of led to him killing his entire family to prevent their own shame and the shame to himself. That killing of his family wasted their potential. My main thought was that he killed them to keep them from finding out what he had done in his past. I hope someone is checking into this as it raised flags to me and I'm assuming I'm not the only one that noticed this.

perk235

October 8, 2008 3:03 AM

DEREGULATION of credit default swaps was co-authored by Phil Gramm in the Commodities Modernization Act in 2000.

DEREGULATION of the financial institutions was co-authored by Phil Gramm in 1999 in the Gramm/Leahy/Bliley Act.

If we reinstate the Glass/Steagall Act, REGULATION which was put into place after the Great Depression and REGULATE the credit default swaps, then we can avoid this happening again.

AmerVtrn

October 8, 2008 3:09 AM

Why hasn't the money been recouped from them? I thought I'd misread the title the first time.By the time reread it in disbelief I was foaming at the mouth.A Texas style education would be a proper thing.Government intervention may lengthen the cycle but it can not stop the boom to bust. I originally posted this before ( about three weeks ago )the Scam Bailout, since then things have accelerated, but that only lengthens the recovery time. In about a year and a half, when the real estate market is at 50 percent, and DOW has stabilized at between 7800-8000, NASDAQ 900-950, S&P 700-750, it will be the bottom. Then it will be safe to go back. Until then it is a Day trader's market. Gambler's paradise. The bailout is just a waste of resources. In fact it will compound the problem. Much like the physicians of old who would bleed the patient, to give the appearance of action. The Scam Bailout is an action to give the appearance of care and concern, but will in truth deplete needed resources for healing and extend the time required for recovery. We are looking at a very rough 3 to 6 years, according to who is president and how much more Socialistic debt is added.

Hotel california

October 8, 2008 3:50 AM

Corrupt to the core. I wonder if these outrage would go on until things are fix? Or like someone said earlier:
"Here's the best part: Congress (both parties mind you) is going to hold "hearings", posture for the cameras, hold a few small-fry chumps responsible for everything, dole out taxpayer cash to the same Wall Street fat cats who regularly contribute to their campaign coffers, then, as soon as everyone is distracted by other news events, go back to business as usual."

brianoh

October 8, 2008 4:31 AM

Let the witch-hunt and search for scapegoats begin. Start with the Fed though. They set the stage for the asset-inflation that caused this whole destruction of true economic values. The rule is quite simple - assets are worth what they earn. The FIAT money system only works if the printers of money know when to stop printing money. Thomas Jefferson was 100% right, Giving too much power to central bankers will destroy the US economy - and they have too much ill-directed power.

dan

October 8, 2008 5:17 AM

This mortgage problem was not just brought on by these courpt men. It was the sky high gasoline companies that hurt the working man so bad that they couldnt pay their mortgages. Gas effects all goods, the working man needs all goods to live. When the gasoline companies were making billions in profit everybody complained but no one did anything,now the working man cant afford anything thanks to the inflated price of gas. These companies are the evil of our nation.

joyce abraham

October 8, 2008 5:19 AM

As a product of the depression, and a member of Myinvestorsplace.com, I and other members, are looking for a solution to coping on a fixed income. Please send us your suggestions for me and the other members of Myinvestorplace.com

dan

October 8, 2008 5:20 AM

This mortgage problem was not just brought on by these courpt men. It was the sky high gasoline companies that hurt the working man so bad that they couldnt pay their mortgages. Gas effects all goods, the working man needs all goods to live. When the gasoline companies were making billions in profit everybody complained but no one did anything,now the working man cant afford anything thanks to the inflated price of gas. These companies are the evil of our nation.

colleen

October 8, 2008 5:31 AM

Its the gasoline companies who caused this mess. The average working man in america put all his money into 150% higher gas and the same with food and clothing etc. Therefore could not afford to pay his mortgage. Gas companies took this country down.And all the corupt politicans that were associated with these companies

Jon

October 8, 2008 6:23 AM

I agree that all of the people that knew that the subprime market was going to tank should have more culpabilty then others; but, to say that all CEO's on Wall Street are corrupt and should go to jail is too much. We need an independent review of all CEO's whose companies were involved in the subprime hedge fund market. After the review, we can then send those guilty to jail and have there assets frozen like we do with political prisoners.

On another note, our government does not know exactly how to fight this problem. They think throwing money at will make it go away. That is not going to work. They need to look at bringing confidence back to the market. They need to make us average Jane's and Joe's feel like we are going to be alright. I am saddened that politicans are not out talking to their constituants (sp) trying to reassure them that things will be alright. Instead, they let the media spotlight the growing fear of collapse. Let's face it, the country is not going to collapse. What happen if it does? Are we going to sit around and wallow in our own self pity? No, we are going to get back up and start making this country back into the country it has always been. We are a strong country and it is about time we started to act like one.
Who hear is tired or hearing the country is falling apart? I for one is really tire of it. My grand father was a farmer and he worked hard all his life to support his family. He would say that somedays are better than others but if you let the days that are worse effect you the most then you live in the worse days.
God Bless and I hope that all of you that read this comment live in the good days.

maggie

October 8, 2008 6:42 AM

Correct me if I'm wrong, but aren't we the people now shareholders in these bailoutees' (new word!)companies? I say we have a shareholders meeting and fire them all. I'm sure we can find good top management at a fraction of the cost.

Rob Stevens

October 8, 2008 6:51 AM

It is clear that these people have not one iota of conscience. If only we lived in a society like Japan where such a disgrace were a lifelong stigma, we could all get some satisfaction from their Seppuku. Instead they just walk off into a sunset of opulent retirement.

Eddie

October 8, 2008 6:59 AM

I agree with David. Send a clear message at the poll booth. It is high time we the people stand up for our rights and whatever living standard is left us. Little by little these punks are draining our wealth and energy with their lies and cons wearing their fine suits living high on the hog, while the whole world toils and scrimps. Enough!

Nemisis

October 8, 2008 9:51 AM

Folks,

(Nemisis - was the Greek God of Retribution)....

If you’re serious about voting against incumbents - vote for a 3rd party candidate. Any vote made for either a democrat or republican is a wasted vote - a vote for continuing our collective rape. Both major parties are complicit - guilty - malicious - contemptuous of us and we need to through them all out! Vote - by all means - but vote for a REAL Change - not puppets mouthing the words (and a media is even more beyond contempt than the political tools they pump).

lynn

October 8, 2008 12:16 PM

This is just the begining of what the bogus bailout will pay for. I'm disgusted with the whole system. Is there anyone who is NOT corrupt at this point? Why work myself into Executive level management and then be disgusted with my peers? Why bother?

Frank K

October 8, 2008 1:17 PM

the aig executives that went on there little junt to the st.regis should have to pay back the money. They should be fired.They should go to jail. I could use a spa treatment myself. I like golf and i like to stay in nice places myself ;but i guess i will just stay home because i have to pay for them to go thanks to congress.They (congress)should should all be thrown out both parties one isn't any better than the other. Comment by an American citizen.

Linda F

October 8, 2008 5:23 PM

If I were to have a cut back at my job, I would look at my household budget to see where I could save. I would NOT go on vacation. These people have no concept of the real world.

Montana Mad

October 8, 2008 6:28 PM

David definitely has it right...clean house, reform and rebuild....what do we have to lose. At this point, the greed and corruption poison has become a permanent and mainstream "IV" in the veins of top corporate officials and their counterpart, our elected officials in Washington. The only way to wean the "body" from its dependency on this drug is the cold hard reality of "cold turkey". It's time to clean house folks and join the "tea party"!.

Raymond

October 9, 2008 8:59 AM

Paulson and Bernanke thinks these types of expenses are normal business expenses. Think of where they come from. The financial world where people get paid hundreds of millions of dollars for signing their name on a piece of paper.

GeraldD

October 9, 2008 10:10 AM

And One Of Them Is Set To Be Our Next Attorney General.

The People Who Struck The Match, Set The Fire, and Fanned the Flames Which Are Burning Our Economy To The Ground Are Conspiring To Shift Blame And Avoid Jail Time.

The Major Players Including Jamie Goerlick, Franklin Raines, Daniel Mudd, and Jim Johnson are at the heart of this meltdown.

Aided By Chris Dodd, Barney Frank, Chuck Schummer, Henry Waxman, Maxine Waters, Artur Davis, Gregory Meeks, Lacy Clay, Harry Reid, John Kerry, Barrack Obama, and Nancy Pelosi.


http://www.youtube.com/watch?v=_MGT_cSi7Rs

These people owe the American People an explanation, an apology, and perhaps some jail time. Don't take your eye off

of the ball. These are the people who lit the match and fanned the flames. One Of The Players, Jamie Goerlick is set to be our next attorney General. We simply CAN'T let this happen or they will all go free.

http://www.wnd.com/index.php?pageId=67068

.

JoeDoex

October 9, 2008 10:57 AM

Interesting how Democrats forced expansion of bad loans.

Democrats blocked Bush's reform proposals for the financial market in 2003 and blocked McCain's proposal in 2005 (filibustered both)

Democrats claimed racism in Fannie Mae investigation by Republicans in 2004

Yet it is the Republicans fault.

What hypocrites and cheats and thieves Democrats are.

Count Koski

October 9, 2008 2:01 PM

I think it's time to consider reducing academic efforts in accounting. Master's thesis, doctor's thesis & other valuable papers that academics HAVE TO produce to further their careers, eventually make it to boards rooms. There, in hands of greedy managers & lawyers, these mutate into "creative bookkeeping". Plain cheating by numbers. As you're reading this, hundreds more are being written. Drama goes on.

Bruce W

October 9, 2008 8:21 PM

Unbelievable! Sullivan clearly lied and misrepresented the true picture.

Employees, shareholders and the US taxpayer are now suffering as a result.

Why have criminal charges not been brought against him?

American

October 9, 2008 9:56 PM

I have only one thing to say, the same thing I have said for ten years....

BURN CONGRESS TO THE GROUND AND START OVER

liz

January 27, 2010 3:20 PM

I am sick of the TO BIG TO FAIL statement. If they banks were told no bailout I am sure those who tangled these assets! would have untangled them sooooooooooooo fast, as their employment would have been at risk.

liz

January 27, 2010 3:20 PM

I am sick of the TO BIG TO FAIL statement. If the banks were told no bailout I am sure those who tangled these assets! would have untangled them sooooooooooooo fast, as their employment would have been at risk.

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